India Customs Impose 150% Tariff on Bulk Scotch Imports from Pernod and Diageo

Indian customs authorities have detained numerous containers of bulk Scotch whisky imported by Pernod Ricard and Diageo amid a dispute over tariff rates. The customs officials are demanding a 150% duty on these shipments, contradicting the companies' expectation of a lower tariff based on assurances linked to the India-UK trade agreement that took effect in July 2023. This development marks the first significant challenge arising from the trade deal between the two nations.

The crux of the disagreement lies in the classification of the imported goods. Customs investigators contend that the bulk Scotch concentrates, which are used in producing whisky brands, do not qualify for the reduced 75% tariff rate granted under the trade pact. Instead, they argue that the concession applies exclusively to finished products such as bottled, ready-for-sale Scotch whisky. The authorities maintain that the concentrates fall under a different customs category known as "compound alcoholic preparations," subject to a 150% tariff implemented since May 1.

On November 2, India's commerce ministry had assured executives from the liquor industry that the government would uphold the trade agreement and resolve the tariff dispute promptly. This reassurance led companies like Pernod Ricard and Diageo to anticipate the application of the lower tariff rate. However, a confidential memo dated November 4 from the finance ministry’s Directorate of Revenue Intelligence instructed customs commissioners nationwide to continue enforcing the higher tariff on bulk Scotch imports. The memo labeled the importers’ claim for preferential treatment as "incorrect" and warned that misclassification could result in significant revenue losses for the government.

The memo provided further clarity on the customs authorities’ stance, stating that the goods in question are not finished whisky products but rather concentrates requiring additional manufacturing processes before becoming market-ready. This interpretation challenges the liquor companies' understanding of the trade pact's terms.

Requests for comment from India’s finance and commerce ministries, as well as the Directorate of Revenue Intelligence, went unanswered. A senior official from the finance ministry indicated that discussions are ongoing between ministries to find an appropriate resolution.

Pernod Ricard, owner of UK-based Scotch producer Chivas Brothers, and Diageo have not responded to inquiries about the situation. Industry sources revealed that each company has over 40 containers currently held up at Indian ports, with Bacardi also facing delays on five containers. These prolonged detentions could disrupt supply chains and impact the availability of Scotch whisky products in the Indian market.

India imported Scotch whisky worth $335 million in 2024, with the Scotch Whisky Association projecting that the India-UK trade deal could increase exports by $1.34 billion over the next five years. A large portion of Scotch imported into India arrives in bulk form and is then used to produce Indian-Made Foreign Liquor (IMFL). IMFL products are blends that incorporate small amounts of Scotch alongside other spirits and ingredients, catering to local tastes and regulations.

The dispute has also prompted tax officials to conduct searches and question executives from the involved companies in recent weeks. The International Spirits and Wines Association of India has cautioned the government that this tariff conflict could undermine the practical benefits of the India-UK trade agreement, particularly regarding market access for foreign producers.

Tariff disagreements have historically been a source of tension for multinational companies operating in India. Previous cases involving major corporations such as Samsung and Volkswagen have seen the government seek substantial back-tax payments, highlighting the challenges foreign businesses can face in navigating India's import regulations.